The Impact of Regulatory Costs on Small Firms

a report for

The Office of Advocacy, U. S. Small Business Administration

RFP No. SBAHQ-00-R-0027

by

W. Mark Crain and Thomas D. Hopkins

Table of Contents

Executive Summary

I. Introduction and Highlights

II. Scope of Regulatory Costs

III. Incidence of Regulatory Costs

IV. Principal Findings

Bibliography

Appendix 1. Statutes and Executive Orders Governing Workplace Regulations

Appendix 2. Economies of Scale in Pollution Abatement Compliance Costs

Appendix 3. Allocation of Tax Compliance Costs Across Firm Size Classifications

Appendix 4. Spending and Staffing by Federal Regulatory Agencies

Appendix 5. Highlights from Hopkins’ 1995 Study, Profiles of Regulatory Costs

List of Tables

1. The Incidence of Federal Regulations by Firm Size, All Business Sectors

2. Size Distribution of American Business, 1997

3. Size Distribution of American Business (in Percentages)

4. Allocation of Business Regulatory Costs Across Sectors

5. Basis for Allocating Workplace Regulations Across Business Sectors

6. Basis for Allocating Tax Compliance Costs Across Firm Sizes (Hours in millions)

7. Federal Receipts and Regulatory Costs Per Household: Levels and Growth, 2000 and 1995 a

8. Total Cost of Federal Regulations: By Type and Allocation Between Business and Others (in billions of 2000 dollars)

9A. Average Sectoral Regulatory Costs, Method A (Transfer and Efficiency Costs in 2000 Dollars.)

9B. Average Sectoral Regulatory Costs, Method B (Efficiency Costs Only in 2000 Dollars.)10A. Business Regulatory Costs in Small, Medium and Large Firms, 2000 (Transfer and Efficiency Cost per Employee in 2000 Dollars) Method A

10B. Business Regulatory Costs in Small, Medium and Large Firms, 2000 (Efficiency Costs per Employee in 2000 Dollars) Method B

A-1. Regression Results: Economies of Scale in Compliance Costs: Environmental Regulations

A-2: Comparison to Hopkins Results on Compliance Costs (in 1995 dollars)

A-3. Sectors Included in the Regression Analysis in Appendix 2

A-4. Basic Data on Business Forms from the Tax Foundation Study

A-5. Total Spending by Federal Regulatory Agencies on Regulatory Activity Fiscal Years, Millions of 2000 Dollars

A-6. Total Staffing in Federal Regulatory Agencies, Fiscal Years, Full-Time Equivalent Employment

A-7. Business Regulatory Costs in Small, Medium and Large Firms, 1992 (Transfer andEfficiency Cost per Employee in 2000 Dollars)

A-8. Business Regulatory Costs in Small, Medium and Large Firms, 1992 (EfficiencyCost per Employee in 2000 Dollars)

List of Figures

A-1. Economies of Scale in Pollution Abatement Costs: U.S. Manufacturers

Acknowledgements

We benefited from comments and suggestions from Richard Belzer, Robert Berney,

Kevin Bromberg, Nicole Crain, Susan Dudley, Wendy Gramm, Brian Headd, Dwight Lee,

Austin Perez, Mary Roy, Kenneth Simonson, and Brett Snyder. Brian Headd also

provided valuable data for the project. Joseph Johnson offered extensive analytical

input throughout the study. All errors are our responsibility.

Executive Summary

To comply with federal regulations, Americans spent $843 billion in 2000. Had

every household received a bill for an equal share, each would have owed $8,164. That

bill would be in addition to the $19,613 share each household contributes (directly or

indirectly) to federal revenues.

While all citizens and businesses of course do share in these costs, the

distribution of this burden is quite uneven. In the business sector, those hit hardest are

small businesses. Firms employing fewer than 20 employees face an annual regulatory

burden of $6,975 per employee, a burden nearly 60 percent above that facing a firm

employing over 500 employees.

Environmental regulations and the paperwork burdens of tax compliance are

particularly disproportionate in hitting small business. Such regulation imposes about 40

percent of total business regulatory burden. Other regulatory burdens—those of

workplace rules, and of constraints on pricing and the products firms can sell or buy

(“economic” regulation)—are distributed more evenly.

The basic picture highlighted above and detailed in this report emerges from a

new analysis of the regulatory record previously explored in a 1995 study for the Office

of Advocacy in the U.S. Small Business Administration. Subsequent regulatory

developments and the availability of new data clarify and in some cases amplify the

basic 1995 findings: regulatory burdens continue to climb, and to disadvantage small

businesses.

I. Introduction and Highlights

In 2000 U.S. federal government regulations cost an estimated $843 billion, or 8

percent of the U.S. Gross Domestic Product (GDP). This cost of complying with federal

regulations was nearly half as large as total U.S. federal government receipts, which

equaled 20 percent of GDP in 2000. Combined, these two costs of government

programs impose a substantial burden on U.S. citizens and businesses.

Policymakers know a great deal about U.S. taxing and spending programs; the

annual federal budget process and the Budget of the United States provide considerable

detail regarding where the money comes from and how it is spent. The same cannot be

said for federal regulatory programs. Of course, accounting for the costs and benefits of

regulations is inherently more difficult than accounting for fiscal programs. Yet the

impact of regulations on business and citizen activities is no less real than the impact of

fiscal programs.

In a 1995 study for the Office of Advocacy, U.S. Small Business Administration,

Hopkins began to fill the information vacuum regarding the federal regulatory burden.1

That report presented a profile of the level and distribution of federal regulatory

compliance costs using data through 1992, and made cost projections through 2000.

This report updates the 1995 Hopkins study and seeks to improve our

understanding of who bears what burdens from regulation. In particular, the report

responds to SBA’s mandate to identify the federal regulatory burden on small U.S. firms,

and whether this burden creates a disproportionate impact on small business. This

mandate derives both from federal statutes and an Executive Order.2 Underlying these

1 Thomas D. Hopkins, Profiles of Regulatory Costs. Report to the U.S. Small BusinessAdministration, U.S. Department of Commerce, National Technical Information Service #PB96128038, November 1995; that 1995 report also is available online at http://www.sba.gov/advo/and its key conclusions are restated for comparative purposes in Appendix 5 of this report.

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formal requirements is the fact that ninety percent of all firms in the U.S. employ fewer

than 20 employees. By comparison, large firms (those with 500 or more employees)

account for only 0.3 percent of all U.S. firms.

Perhaps our most important finding is that small businesses bear a

disproportionately large share of the federal regulatory burden. This result is broadly

consistent with that of the 1995 Hopkins report as well as with other studies completed

during the past two decades, pursuant to the Regulatory Flexibility Act.3 Table 1

summarizes the incidence pattern by firm size based on the aggregate data for all

business sectors (comparable data from the 1995 Hopkins report appear in Appendix 5).

2 In recognition of the important role of small business in the US, the federal RegulatoryFlexibility Act of 1980 (RFA) requires federal agencies to analyze the impact of proposedregulations on small firms. The RFA also requires agencies to conduct periodic reviews ofexisting regulations, again to determine whether a regulation creates a disproportionate impact onsmall business. If the analysis finds that a regulation has a disproportionate impact, the RFAdirects agencies to seek means within the intent of the law to minimize the impact on small firms.To tighten compliance with the RFA, Congress in 1996 passed the Small Business RegulatoryEnforcement Fairness Act (SBREFA). SBREFA allowed an affected small entity to take anagency to court if, among other things, it failed to make a good faith effort to analyze the impact ofregulatory costs by firm size, and it expanded the authority of the chief counsel for Advocacy ofthe U.S. Small Business Administration to file amicus curiae briefs in such cases. If the courtfinds that an agency did not comply with the law, various remedies are available includinginjunctive relief and requiring the agency to make an appropriate analysis. In 1993, PresidentClinton issued Executive Order 12866, which further requires federal agencies to consider thedistributional impact in the design and choice of regulations.

3 Such studies include Henry B. R. Beale and King Lin, Impacts of Federal Regulations,Paperwork, and Tax Requirements on Small Business, SBAHQ-95-C-0023; MicroeconomicApplications, Inc., prepared for the Office of Advocacy, U.S. Small Business Administration,September, 1998; Roland J. Cole and Paul Sommers, Costs of Compliance in Small andModerate- sized Businesses, SBA-79-2668, Battelle Human Affairs Research Centers, Seattle,WA, February, 1980; Improving Economic Analysis of Government Regulations on SmallBusiness, SBA-2648-OA-79, JACA Corporation, Fort Washington, PA, January, 1981; Robert J.Gaston and Sidney L. Carroll, State and Local Regulatory Restrictions as Fixed Cost Barriers toSmall Business Enterprise, SBA-7167-AER-83, Applied Economics Group, Inc., Knoxville, TN,April, 1984; and, Economies of Scale in Regulatory Compliance: Evidence of the DifferentialImpacts of Regulation by Firm Size, SBA-7188-OA-83, Jack Faucett Associates, Chevy Chase,MD, December, 1984. For a theoretical discussion, see William A. Brock and David S. Evans,The Economics of Small Businesses: Their Role and Regulation in the U.S. Economy, Holmes &Meier, New York, NY, 1986, especially chapters 4 and 5.

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Table 1: The Incidence of Federal Regulations by Firm Size, All Business Sectors *

Cost per employee for firms with:

Type of Regulation All Firms <20 employees 20-499 employees 500+ employees

All Federal Regulations $ 4,722 $ 6,975 $ 4,319 $ 4,463

Environmental $ 1,213 $ 3,328 $ 1,173 $ 717Economic $ 2,065 $ 1,616 $ 1,648 $ 2,485

Workplace $ 779 $ 829 $ 873 $ 698Tax Compliance $ 665 $ 1,202 $ 625 $ 562

* Note to Table 1: These aggregate cost data use employment shares to weight the respectivebusiness sectors. The estimates are for 2000 and are denominated in 2000 dollars.

Considering all federal regulations and all business sectors, regulations cost firms with

fewer than 20 employees nearly $7,000 per employee per year. Regulations cost

medium-size firms about $4,300 and large firms $4,500 per year per employee. Costs

per employee thus appear to be 55 to 60 percent higher in small firms than in medium-

size and large firms.

This report details the distribution of regulatory costs for four major business

sectors: Manufacturing, Trade (wholesale and retail), Services, and Other (a residual

containing all other enterprises). The findings reveal that the disproportionate cost

burden on small firms is particularly stark for the manufacturing sector. In that sector the

cost per employee for small manufacturers is more than double the cost for medium-size

and large firms. In the trade sector (wholesale and retail businesses) the regulatory cost

differential between small businesses and the larger-size firms is not nearly so large, in

the range of 11 to 18 percent. The disproportionate regulatory burden on small firms in

the other major sectors falls somewhere between these two cases.

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The cost disadvantage facing small business is driven largely by compliance with

environmental regulations and tax-related paperwork, as Table 1 illustrates.4 However,

the particular drivers of the cost distribution differ across the four business sectors.

Later sections of the report lay out these distinctions in considerable detail. Not all

regulations fall more heavily on small businesses than on larger firms. For example, in

the aggregate estimates for all sectors (Table 1) the cost per employee of economic

regulations falls most heavily on large firms. The cost per employee of workplace

regulations falls most heavily on medium-sized firms, which most likely reflects the fact

that small firms are explicitly exempt from many workplace regulations.

The remainder of the report has three sections and five appendices. Section II

gives an overview of the regulatory accounting methodology and describes the primary

sources for the cost estimates used in the report. Section III begins with a snapshot of

American enterprise, showing the distribution of firms, employees, and receipts across

major sectors of the U.S. economy. It then explains the assumptions underlying our

allocation of the total federal regulatory burden and maps the methods used to allocate:

(i) the total regulatory burden that falls on business, (ii) the regulatory costs across

business sectors, and (iii) the regulatory costs by firm size within each sector. Section

IV provides the main findings for the distribution of the federal regulatory burden across

4 Other studies are consistent with this finding of economies of scale in environmental regulatorycompliance. See, for examples, Thomas J. Dean, “Pollution Regulations as a Barrier to theFormation of Small Manufacturing Establishments: A Longitudinal Analysis,” Office of Advocacy,U.S. Small Business Administration: Washington, D.C., 1994; and Thomas J. Dean, et al.,“Environmental Regulation as a Barrier to the Formation of Small Manufacturing Establishments:A Longitudinal Analysis,” Journal of Environmental Economics and Management 40, 2000, pp.56-75. These two studies suggest that regulatory costs lower the startup rate for new firms,especially in the manufacturing sector, because of its higher capital requirements fromenvironmental and other types of regulations. They also indicate that environmental regulationsincrease the minimum efficient scale of production. See also the related study by Samuel Staley,et al., Giving A Leg Up to Bootstrap Entrepreneurship: Expanding Economic Opportunity inAmerica’s Urban Centers, Los Angeles: Reason Public Policy Institute, 2001.

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sectors and firm sizes. The appendices contain details for the various analytical

procedures used in the report.

No data appear in this report concerning regulatory benefits, an important

challenge that would be a logical next step toward achieving a more rational regulatory

system. This report, thus, should be seen as a building block toward a more adequate

understanding of regulation, much but not all of which creates important and substantial

benefits. It addresses cost concerns that are significant in their own right, but more

remains to be done.

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II. Scope of Regulatory Costs

Perspective on Regulatory Accounting

The total direct cost of federal regulations consists of resources employed by

government agencies as well as by private sector enterprises. The regulatory costs

included in this report focus on the latter: the resource costs over and above those that

show up in the federal budget. The report provides an accounting of the non-budgeted

costs imposed by regulations. A simple example illustrates our perspective on

regulatory accounting. The total direct cost to the nation of, say, a pollution control

regulation consists of spending by the U.S. Environmental Protection Agency for

monitoring and enforcement activities, plus spending by business to install abatement

equipment, hire engineers, and so on to comply with the regulatory rules. EPA spending

shows up in the federal budget, and therefore would not be included in our accounting.

Rather, this report includes estimates of the impact on those who are regulated: the

spending by business to install abatement equipment, hire engineers, and so forth. In

this sense, our estimates understate the full cost of federal regulations.

Regulatory agency spending — the cost component this report excludes —

amounts to only about 2 percent of the non-budgeted regulatory compliance costs on

which we focus. Nonetheless, spending by federal regulatory agencies on regulatory

activity reached $18.9 billion in fiscal year 2000, so it is not trivial. Appendix 4 provides

the on-budget costs of federal regulations, and shows how these costs have grown over

time.5 Between 1970 and 2000 regulatory agency budgets grew by 203 percent in

inflation-adjusted dollars, a 3.7 percent annualized growth rate. Total staffing in federal

regulatory agencies in fiscal year 2000 equaled nearly 130,000 full-time equivalent

5 These data are from Melinda Warren, Federal Regulatory Spending Reaches a New Height: AnAnalysis of the Budget of the U.S. Government for the Year 2001, Center for Study of AmericanBusiness, Washington University, Regulatory Report No. 23, June 2000.

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employees. These staffing levels grew by 86 percent between 1970 and 2000, or 2.1

percent on an annualized basis. While these on-budget indicators of federal regulatory

costs are substantial, they pale in comparison to the non-budgeted compliance costs on

which this report focuses.

Other important regulatory costs exist that are not captured in this report’s

estimates, most notably activities by state and local governments, and indirect burdens.

Each of the 50 American states has an array of regulations superimposed on federal

regulations. These costs are not explicitly considered here, but do add to the nation’s

total regulatory burden. Similarly, this report makes no attempt to go beyond an

accounting for the direct, or initial cost of regulations even though such indirect costs

may be substantial. For example, environmental regulations directly affect the cost of

producing electricity, and these show up as a direct cost for electric utilities. We account

for these types of direct costs. Yet increases in the cost of electricity create a ripple

effect throughout the American economy in the form of higher energy costs, thus

causing indirect effects in virtually every productive sector. We do not attempt to

account for indirect effects of this nature. Other indirect, or general equilibrium, effects

include a reduction in dynamic efficiency, such as slowing innovations that would lead to

productivity gains and therefore general economic expansions over time. Omission of

these indirect and general equilibrium effects simply means that our accounting

procedure understates the full burden of federal regulations.6

6 Hazilla and Kopp provide estimates of the indirect effects of environmental regulations as wellas the dynamic consequences. Their evidence suggests that both of these costs are substantial.See Michael Hazilla and Raymond Kopp, “The Social Cost of Environmental Quality Regulations:A General Equilibrium Analysis,” Journal of Political Economy, Vol. 98 (4), 1990.

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The report divides federal regulations into four categories: Environmental,

Economic, Workplace, and Tax Compliance.7 A description of each category follows,

along with an explanation of the primary sources from which we derive our cost

estimates.

Environmental Regulations

The cost estimates for environmental regulations adopt the estimates provided

by the U.S. Office of Management and Budget (OMB) in their two latest reports to

Congress.8 In their most recent 2001 Report OMB provides an update for regulations

promulgated between April 1999 and March 2000. In their 2000 Report, OMB compiles

an estimate of the total cost of regulations issued through April 1999. That cumulative

compilation starts with the baseline cost estimate for environmental regulations in the

1991 study by Hahn and Hird, and increments this baseline cost for subsequent

regulations.9 OMB’s incremental cost estimates use regulatory impact analyses (RIAs)

issued mainly by the U.S. Environmental Protection Agency.

OMB appropriately discusses the shortcomings in these estimates, including the

basic fact that cost estimates do not exist for all environmental regulations, and the

inherent difficulties in performing the RIAs. For example, OMB does not include an

estimate for the cost of the Superfund program, which is likely to be quite large. To

7 We note that these four categories differ slightly from those used in the 1995 Hopkins study.Hopkins used the following four categories: Environmental, Other Social, Economic, and Process.The revised categories used in this report conform reasonably well with the standard divisionsused by the U.S. Office of Management and Budget in its annual reports to Congress that beganin 1997.

8 U.S. Office of Management and Budget, Office of Information and Regulatory Affairs, Report toCongress on the Costs and Benefits of Federal Regulations, 2000, and 2001.

9 Robert W. Hahn and John A. Hird, “The Costs and Benefits of Regulation: Review andSynthesis,” Yale Journal of Regulation, Vol. 8 (1), Winter 1991, pp. 233-278.

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account for these shortcomings, OMB provides a range of cost estimates for most

regulations. We use the high-end of the cost estimates provided by OMB in our analysis

below. This reflects a judgment on our part that cost estimates are absent for important

environmental regulations and that government agencies tend to be conservative in

estimating regulatory costs.10 For comparison, if we were to use the mid-point of the

OMB high and low estimates the cost of environmental regulations in this report would

decline by roughly $40 billion, a 20 percent reduction.11

Economic Regulations

The burden of economic regulation includes two broad elements, typically

labeled efficiency costs and transfer costs. An efficiency cost reflects the value of the

resources foregone in direct response to restrictions on firm entry, output and pricing

decisions, or cost-minimizing production techniques. In other words, what is the value of

the product or service that is lost as a result of an economic regulation? A transfer cost,

as the name implies, refers to the redistribution of income or wealth in direct response to

a regulation. For example, a law restricting the importation of foreign sugar into the U.S.

10 For example, the upper bound estimate in the OMB report includes efficiency costs and buildsupon the Hahn and Hird (1991) study. In contrast, the lower bound estimate focuses oncompliance costs and essentially sums the costs presented in the available EPA RIAs. Severalregulatory experts draw a similar conclusion about the OMB environmental cost estimates. See,for example, the discussion in Robert W. Hahn, "Regulatory Reform: What Do the Government'sNumbers Tell Us?" in Robert W. Hahn (ed.) Risks, Costs, and Lives Saved: Getting BetterResults from Regulation, New York: Oxford University Press and AEI Press, 1996, pp. 208-253.Hahn makes a strong case that government agencies overestimate benefits and underestimatecosts systematically. In addition, the review article by Jaffe, et al., "Environmental Regulation andthe Competitiveness of U.S. Manufacturing," Journal of Economic Literature, Vol. 33 (1), 1995,suggests that environmental costs in the long run have exceeded compliance cost estimates.Finally, the study by Winston Harrington, et al. “On the Accuracy of Regulatory Cost Estimates,”Journal of Policy Analysis and Management, Vol. 19 (2), 2000, examines the estimates for 28particular rules promulgated by EPA and OSHA and finds, contrariwise, that overestimation ofunit costs occurs about as often as underestimation.

11 The baseline cost estimate that OMB takes from Hahn and Hird (1991) is lower than others(such as that of the Council on Environmental Quality) included in Hahn and Hird’s review.

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raises the price of sugar in the U.S. market. This import restriction thus redistributes

income away from candy makers, carbonated soft drink manufacturers, and myriad other

firms that purchase sugar domestically. A portion of this redistribution burden ultimately

gets passed along to candy eaters, soft drink drinkers, and so on. On the receiving end

of this income transfer are the domestic growers and sugar manufacturers.

A lively, on-going debate persists over whether and to what extent regulation-

induced transfers should be scored as a real cost. In brief, the main argument for

counting transfers as a cost is that it approximates the real resources that will be

devoted to acquiring, maintaining, or eliminating the responsible regulation. For

example, if U.S. domestic sugar producers benefit, say, by $5 billion annually from

import protection, they will devote a commensurate amount of resources to maintaining

this protection. Likewise, candy makers and soft drink manufacturers will devote real

resources toward its repeal; these resources might include lobbying, legal, and other

public relations activities. The real resources used in activities to acquire and maintain,

or to prevent and eliminate economic regulations are diverted from other, productive

economic activities. As such, economic regulations cause transfers and thereby create

a real resource burden on the economy.

To accommodate both sides of this debate, this report provides two alternative

estimates of the cost of economic regulations. One includes both efficiency costs and

transfer costs, and the other includes only the efficiency costs. We denote these two

alternative estimates as Method A and Method B in the presentation of the results.

The report provides a two-part estimate of the cost of economic regulations. One

is for regulations covering domestic commerce, and the second is for international trade

restrictions. For domestic commerce regulations, we rely on the 1999 study by the

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Organization for Economic Cooperation and Development (OECD).12 The OECD

estimates that reforms in the transportation, energy, and telecommunications sectors

would lead to an increase in U.S. GDP of one percent. One percent of U.S. GDP in

2000 (equal to $10.1 trillion) yields an efficiency cost estimate of $101 billion. We

approximate the transfer costs using the approach suggested by Hahn and Hird, namely

by estimating transfers as a multiple of efficiency costs.13 By this method and using a

multiple of two (the conservative end of the range suggested in Hahn and Hird), we

estimate the transfer costs to be $202 billion.

For international trade regulations, the report follows the approach described in

the 2000 OMB Report and in the 1998 Economic Report of the President.14 The

potential gains from removing U.S. trade barriers equal to 1.3 percent of U.S. GDP, or

$132 billion in 2000. We apportion this between efficiency costs and transfer costs

again using the "multiple of two" rule, which places the efficiency costs at $44 billion, and

the transfer costs at $88 billion. All told, we arrive at an aggregate efficiency cost of

economic regulations (domestic plus international trade) equal to $145 billion, and an

aggregate transfer cost equal to $290 billion.

12 Organization for Economic Cooperation and Development, Regulatory Reform in the UnitedStates, OECD Reviews of Regulatory Reform, Paris, 1999. OMB in its 2000 Report also adoptsthe OECD method for estimating economic regulations.

13 The method we use to approximate the transfer costs of economic regulations is the samemethod used by Hopkins, 1995 and OMB, 2000.

14 OMB, 2000, p. 32, and Council of Economic Advisers, Economic Report of the President,1998.

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Workplace Regulations

The source of our cost estimates on workplace regulations is a 2001 study by

Johnson.15 The Johnson study provides the most comprehensive analysis to date,

covering twenty-five statutory acts and executive orders that encompass all significant

workplace regulations promulgated by the federal government. Johnson surveys

numerous government reports (including RIAs) and academic studies that estimate

costs for specific regulations, and identifies from these the most reliable.

Aggregating across the twenty-five statutory acts and executive orders, Johnson

places the efficiency cost of workplace regulations at $24 billion and the transfer costs at

$58 billion (here converted into 2000 dollars).

Tax Compliance

Prior studies of federal regulations stress the substantial burden of paperwork

costs on the American public and businesses. Of this burden, the tax-related paperwork

required to comply with the federal tax code accounts for the lion’s share. Of course, the

federal government requires a host of additional forms that also impose a paperwork and

reporting burden. However, to a great extent these other paperwork requirements are

tied to specific economic or workplace regulations. This means that our cost estimates

for economic regulations and workplace regulations already account for most of the non-

tax-related paperwork burden.

Our estimate of the cost of tax compliance relies on a 2000 report by the Tax

Foundation.16 The approach in that study is straightforward and easy to summarize. It

15 Joseph Johnson, The Cost of Workplace Regulations, Mercatus Center, George MasonUniversity, Arlington, Virginia, April 2001.

16 J. Scott Moody, The Cost of Complying with the U.S. Federal Income Tax, Background PaperNo. 35, The Tax Foundation, Washington, DC, November 2000. Moody uses data for 1999.

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uses data from the Internal Revenue Service on the hours of compliance time required

for each type of tax form, and the number of filings for each type of form. These total

hours spent on compliance are then multiplied by various hourly wage rates that reflect

either the value of the preparer’s time or the rate for a tax professional.17 Based on the

Tax Foundation findings, the estimated cost of federal tax compliance is $129 billion (in

2000 dollars). To be clear, this $129 billion estimate includes the combined costs on

individual filers and business filers.

17 Interestingly, the Tax Foundation study states that tax professionals prepare 56 percent of allforms.

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III. Incidence of Regulatory Costs: Accounting Methodology

A. A Snapshot of American Enterprise

The report uses a three-part firm size classification, relying on SBA data on

employees per firm:

§ Small Firms Fewer than 20 employees,

§ Medium Firms 20-499 employees, and

§ Large Firms 500 + employees.

We segment businesses and present data separately for four sectors:

§ Manufacturing

§ Trade (Wholesale and Retail Trade)

§ Services, and

§ Other (a residual containing all other enterprises).

These firm size and business sector classifications mirror those used in the 1995

Hopkins report.

Table 2 shows the distribution of American industry by sector and firm size using

the most recently available data from the Small Business Administration.18 We present

three relevant business indicators in Table 2: the number of firms, the number of

employees, and total receipts.

18 American industry is obviously not static and these 1997 data on the distribution of businessactivity do not match exactly with the years for the data on regulatory costs. However, changes inthe basic structure of American industry generally occur only in gradual increments. These dataprovide a reasonable approximation for the relevant years of the proportions of firms, employees,and receipts across our firm size and sector classifications.

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Table 2: Size Distribution of American Business, 1997 *

Sector Size Measure All Firms a <20 employees 20-499 employees 500+ employeesAll Sectors a No. of Firms 5,541,918 4,958,641 567,198 16,079

Employment 105,299,123 20,118,816 34,426,554 50,753,753Receipts ($000) 19,578,199,806 2,990,867,758 5,024,101,537 11,563,230,510

Manufacturing Firms 333,670 243,702 85,011 4,957Employment 18,633,065 1,359,740 5,917,403 11,355,922Receipts ($000) 4,283,180,224 175,423,861 886,321,225 3,221,435,138

Trade Firms 1,511,347 1,316,655 188,098 6,594Employment 28,814,058 6,058,285 9,503,449 13,252,324Receipts ($000) 5,618,473,214 1,228,464,729 1,758,341,502 2,631,666,983

Services Firms 2,224,348 2,016,246 199,168 8,934Employment 37,384,595 7,830,968 12,751,477 16,802,150Receipts ($000) 2,851,573,176 699,226,249 832,305,375 1,320,041,552

Other Firms 1,472,553 1,382,038 94,921 4,406Employment 20,467,405 4,869,823 6,254,225 9,343,357Receipts ($000) 6,824,973,192 887,752,919 1,547,133,436 4,390,086,837

Notes to Table 2:

* Source: U.S. Small Business Administration, Office of Advocacy, “Statistics of U.S. Businesses:Firm Size Data,” Web Site: http://www.sba.gov/advo/stats/data.html. Receipts are converted into2000 dollars. The Office of Advocacy contracts with the U.S. Census Bureau to provide employerfirm size data.

a These “Statistics of U.S. Businesses” data cover almost all nonfarm employer businesses. Itomits farms, railroads, and most government-owned establishments, the U.S. Postal Service, andlarge pension, health and welfare funds (100 + employees) and non-incorporated firms with nopaid employees.

Table 3 organizes the distribution of these same business indicators in a

different, and for our purposes more useful, fashion. There we simply convert the raw

data from Table 2 into percentage terms. For example, consider the data in Table 3 that

describe the manufacturing sector. That sector accounts for six percent of all U.S. firms,

18 percent of all U.S. employees and 22 percent of all U.S. business receipts. Within

the sector, 73 percent of the firms classify as small businesses, 7 percent of

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manufacturing employees work in small firms, and small firms generate 4 percent of the

sector’s receipts.

Table 3: Size Distribution of American Business (in Percentages)

Sector Share of All U.S. IndustrySize Measure Manufacturing Trade Services Other

No. of Firms 6% 27% 40% 27%Employees 18% 27% 36% 19%Receipts 22% 29% 15% 35%

Percent of Firms, by SectorManufacturing Trade Services Other All Sectors

<20 employees 73% 87% 91% 94% 89%20-499 employees 25% 12% 9% 6% 10%500+ employees 1% 0.4% 0.4% 0% 0.3%

Percent of Employees, by SectorManufacturing Trade Services Other All Sectors

<20 employees 7% 21% 21% 24% 19%20-499 employees 32% 33% 34% 31% 33%500+ employees 61% 46% 45% 46% 48%

Percent of Receipts, by SectorManufacturing Trade Services Other All Sectors

<20 employees 4% 22% 25% 13% 15%20-499 employees 21% 31% 29% 23% 26%500+ employees 75% 47% 46% 64% 59%

Source: See Table 3

We use the percentages displayed in Table 3 extensively in the allocation of regulatory

costs across sectors and firm sizes, procedures that we describe in considerable detail

below.

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B. Cost Allocation Assumptions

Business Portion of the Regulatory Burden

First we seek to separate the regulatory burden that falls initially on business

from the burden that falls initially on individuals and state and local governments. As

discussed in Section II, the report makes no attempt to trace the subsequent shifting of

this burden from business to individuals (e.g., in the form of higher retail prices) or from

one business sector to another (e.g., in the form higher energy costs). The cost

allocations for each separate category are as follows:

§ Environmental business 65%, other 35%

§ Economic business 50%, other 50%

§ Workplace business 100%, other 0%

§ Federal Tax Compliance business 54%, other 46%

The allocations for environmental regulations and economic regulations are adopted

from the 1995 Hopkins study.19 We base the allocation for workplace regulations on the

simple fact that these only apply to business enterprises. The allocation for federal tax

compliance uses the apportionment data from the Tax Foundation study.20

Allocation of Regulatory Costs Across Business Sectors

The second task is to allocate the business segment of regulation costs across

the four business sectors. Table 4 lists these allocations by sector, and we describe the

allocation basis for each type of regulation in turn.

19 The basis for the allocation of environmental costs in Hopkins (1995, p. 13) was compliancedata from the Environmental Protection Agency, “Environmental Investments: The Cost of aClean Environment,” EPA 230-11-90-083, November 1990, pp. 2-5; In the absence of allocationdata for economic regulation, a default judgment of 50-50 was applied.

20 See Footnote 11.

18

Table 4: Allocation of Business Regulatory Costs Across Sectors

Sectoral AllocationType of Regulation Manufacturing Trade Services OtherEnvironmental 54% 0% 1% 45%Workplace 19% 26% 34% 21%Economic 22% 29% 15% 35%Federal Tax Compliance 22% 29% 15% 35%

The allocation for environmental regulations is taken from Hazilla and Kopp.21

Almost all of these costs fall on the manufacturing sector (54 percent) and the residual,

or “other” sector (45 percent). The “other” sector includes such businesses as Coal

Mining, Ore Mining, Oil and Gas Extraction, Coal Gasification, and Electric Utilities, all of

which are heavily affected by regulations promulgated under the Clean Air Act and the

Clean Water Act.

The allocation for workplace regulations is based on a decomposition of all

workplace regulations into six types. These six types are shown in Table 5, and the

specific statutes and Executive Orders that fall within each are listed in Appendix 1.

Table 5: Basis for Allocating Workplace Regulations Across Business Sectors *

Manufacturing Trade Service OtherType of WorkplaceRegulation Share Cost Share Cost Share Cost Share Cost Allocation BasisLabor Standards 30% $ 1,502 13% $ 659 22% $ 1,106 35% $ 1,727 % Unionized Emp.

Employee Benefits 18% $ 781 27% $ 1,208 36% $ 1,567 19% $ 858% U.S.Employment

Labor-Management Relations 30% $ 1,198 13% $ 525 22% $ 882 35% $ 1,377 % Unionized Emp.

Occupational Safety and Health 18% $ 9,837 27% $15,211 36% $19,736 19% $10,805% U.S.Employment

Civil Rights 18% $ 1,791 27% $ 2,770 36% $ 3,593 19% $ 1,967% U.S.Employment

Employment Decision Laws 18% $ 511 27% $ 790 36% $ 1,025 19% $ 561% U.S.Employment

All Workplace Regulations 19% $15,620 26% $21,163 34% $27,910 21% $17,295

* Note to Table 5: All dollar figures are in millions, and denominated in 2000 dollars.

21 Hazilla and Kopp, p. 858.

19

For two categories of workplace regulations, Labor Standards and Labor-

Management Relations, we allocate costs based on each sector’s share of all U.S.

private sector employees represented by a union. For example, of the nearly 10 million

private sector workers in the U.S. represented by a union in 2000, almost 3 million (30

percent) worked in the manufacturing sector.22 We use unionization shares for the

somewhat obvious reason that these two types of regulations largely include union

wage-related issues (e.g., the Service Contract Act, the Walsh-Healey Act, and the

Davis-Bacon Act) and collective bargaining issues (e.g., the National Labor Relations

Act). For the four other types of workplace regulations, Employee Benefits,

Occupational Safety and Health, Civil Rights, and Employment Decision Laws, we

allocate costs based on each sector’s share of total U.S. employment. We then sum the

total workplace costs for each sector separately and compute each sector’s share of all

workplace regulations. These final allocation shares are shown on the last row of Table

5.

Regarding economic regulations and federal tax compliance, we allocate the

costs based on each sector’s share of total U.S. business receipts.23 These revenue

shares are shown in Table 3 above. In the case of economic regulations, the rationale

underlying this allocation formula is that both the efficiency costs and the transfer costs

will be proportional to industry output and price, which of course determine industry

22 The source for union representation data by sector is the U.S. Bureau of Labor Statistics,“Labor Force Statistics from the Current Population Survey,”http://stats.bls.gov/news.release/union2.t03.htm.

23 The source for the industry receipts data is U.S. Small Business Administration, Office ofAdvocacy, Statistics of Businesses: Firm Size Data, Web Site:http://www.sba.gov/advo/stats/data.html. As noted in Table 2, these data cover almost allnonfarm employer businesses, and omits non-incorporated firms with no paid employees.According to the Census Bureau, in terms of receipts, non-employers account for roughly 3percent of all business activity (see U.S. Census Bureau, “Nonemployer Statistics,”http://www.census.gov/epcd/nonemployer).

20

receipts. In the case of tax compliance, we expect the time and resources devoted to

record keeping, tax accountants, paperwork, and litigation to be correlated highly with

industry receipts.

Allocation of Regulatory Costs By Firm Size

The third task involves allocating the costs of regulations by firm size. As noted

above we adopt a three-division scheme: firms with fewer than 20 employees (“small”),

firms with 20 to 499 employees (“medium”), and firms with 500 or more employees

(“large”). The specific allocation procedure differs for each type of regulation

Appendix 2 provides a complete technical description of the methodology used to

allocate the cost of environmental regulations by firm size. The general methodology is

simply summarized here. We use multiple regression analysis to estimate the

relationship between pollution abatement costs (PAC) per employee and firm size,

measured by the number of employees per firm. That is, the model regresses firm

compliance costs per employee against the number of employees, controlling for other

factors. The regression results indicate that a one percent increase in firm size

(measured in terms of the number of employees) corresponds to a 0.43 percent

decrease in pollution abatement costs per employee. In essence, this parameter

estimates the degree of economies of scale in compliance costs.

For each business sector we use: (i) this economies of scale parameter value, (ii)

the share of employees within each size category, and (iii) the sector’s overall average

cost per employee to solve for the median cost per employee within each firm size

category. To restate the problem differently, given the economies of scale parameter

and the share of employees within each size class, what per employee cost for the three

firm size classes would yield the overall sector average cost?

21

For workplace regulations, the cost allocation among the three firm size groups

for each sector uses a two-step procedure. Step one separates the total regulatory

costs for the sector into two components, those that apply to all firms and those that

explicitly exempt small firms (those with fewer than 20 employees). Appendix 1 denotes

the exempt and non-exempt workplace regulations. In step two, for the non-exempt

regulations we follow the assumption in Hopkins (1995) and allocate the costs such that

the cost per employee in small firms is 20 percent higher than in medium-sized firms,

and the cost per employee in large firms is 20 percent lower than in medium-sized firms.

For the regulations that exempt small firms, we allocate the costs solely between the

medium and large firms using the same ratio as above (20 percent lower per employee

in large firms than in medium-sized firms). The final allocation then sums the non-

exempt and exempt cost components for each firm size category.24

The firm size allocation formula for economic regulations is based on the share of

receipts generated within each firm size category. These receipt shares are shown in

Table 3 above. For example, in the manufacturing sector, small firms generate 4

percent of receipts within the sector, medium firms generate 21 percent, and large firms

generate 75 percent. As described above for the “sectoral allocations,” we apportion the

costs of economic regulation based on receipts because the extent of efficiency losses

and transfer costs should be correlated closely with product market prices and output.

Finally, we allocate the costs of tax compliance across firm size classifications

based on the compliance hours data from the Tax Foundation study.25 Appendix 3

24 The category of “non-exempt workplace regulations” is the one area to which we apply thisjudgmental cost allocation used in Hopkins (1995). That is, in this report we only apply the 20percent assumption to a relatively small segment of all regulations, and therefore the overallresults are not very sensitive to this assumption.

25 See Footnote 11.

22

provides the details of cost allocation methodology, and Table 6 summarizes the

allocation shares used in the analysis.

Table 6: Basis for Allocating Tax Compliance Costs Across Firm Sizes (Hours in Millions)

Manufacturing Trade Service Other

Firm Size Category Share Hours Share Hours Share Hours Share Hours<20 employees 25% 109 30% 167 31% 87 29% 19820 to 499 employees 28% 119 34% 193 33% 93 27% 184500+ employees 47% 200 36% 200 37% 104 44% 300

23

IV. Principal Findings

The analysis adopts two alternative profiles of regulatory costs, one that includes

a combined estimate of the efficiency and transfer costs, and a second that includes only

the estimate of efficiency costs. This section outlines the principal findings, which are

detailed in tabular form. We reiterate the distinction between the two alternative cost

estimates reported: Method A includes efficiency costs and transfer costs; Method B

includes only efficiency costs.

The Federal Burden Per Household

Table 7 benchmarks the cost of federal regulations in relation to the number of

households in the US, showing how the cost per household has changed since the

Hopkins study in 1995. Table 7 further shows the total federal burden, that is, when

federal tax receipts are added, and how this total burden per household changed

between 1995 and 2000. We adjust these indicators for inflation (expressed in 2000

dollars), which means that the changes reflect growth in excess of the increases in

population and the general cost of living.

24

Table 7. Federal Receipts and Regulatory Costs Per Household: Levels andGrowth, 2000 and 1995 a

Method A: Efficiency and Transfer Costs

YearHouseholds(thousands)

Federal Receiptsper HH b

TotalRegulatory

Costs per HH

CombinedFederal Burden

per HH

2000 103,246 $19,613 $8,164 $27,778

1995 c 98,180 $15,501 $7,691 $23,192

Total Growth: 1995 to 2000 5% 24% 6% 18%

Annualized Compound GrowthRate: 1995 to 2000 1% 4.7% 1.2% 3.6%

Method B: Efficiency Costs Only

2000 103,246 $19,613 $4,797 $24,411

1995 c 98,180 $15,501 $4,789 $20,291

Total Growth: 1995 to 2000 5% 24% 0.2% 18.5%Annualized Compound GrowthRate: 1995 to 2000 1% 4.7% 0.03% 3.7%

Notes to Table 7.a All dollar amounts expressed in 2000 dollars.b Federal Receipts include Social Security. Source: CBO Web Site:http://www.cbo.gov/showdoc.cfm?index=2727&sequence=0&from=0#anchorc Source: Hopkins, 1995

Based on Method A, over this five-year period the real regulatory cost per

household grew by 1.2 percent (compounded annually), to $8,164 from $7,691. Based

on Method B, the regulatory cost per household grew by 0.03 percent annually, to

$4,797 from $4,789. By either method, the real total federal burden per household

(federal revenues plus regulatory costs) increased at an annualized rate of nearly four

percent in inflation-adjusted dollars.

25

The Business Portion of the Regulatory Burden

Table 8 shows the estimated costs of all federal regulations, broken down by

type and the distribution of the burden between business and others, i.e., individuals and

state and local government.

Table 8. Total Cost of Federal Regulations: By Type and Allocation BetweenBusiness and Others (in billions of 2000 dollars)

Method A: Efficiency and Transfer Costs

Business Portion Others

Total Costs Share Amount Share AmountAll Federal Regulations $ 843 59% $ 497 41% $ 346Environmental $ 197 65% $ 128 35% $ 69Economic $ 435 50% $ 217 50% $ 217Workplace $ 82 100% $ 82 0% $ -Tax Compliance $ 129 54% $ 70 46% $ 59

Method B: Efficiency Costs Only

Business Portion Others

Total Costs Share Amount Share AmountAll Federal Regulations $ 495 59% $ 295 41% $ 201Environmental $ 197 65% $ 128 35% $ 69Economic $ 145 50% $ 72 50% $ 72Workplace $ 24 100% $ 24 0% $ -Tax Compliance $ 129 54% $ 70 46% $ 59

26

These estimates in Table 8 indicate that the annual total cost of all federal regulations

ranges between $495 billion (excluding transfer costs) and $843 billion (including

transfer costs). Of this amount, the annual direct burden on business ranges between

$295 billion and $497 billion.26

The most costly type of regulation depends on the cost accounting method.

When transfer costs are counted (Method A), economic regulations represent the most

costly category ($435 billion); when transfer costs are excluded (Method B),

environmental regulations represent the most costly category ($197 billion). Compliance

with the federal tax code costs an estimated $129 billion, and the costs of workplace

regulations range from $24 billion (Method B) to $82 billion (Method A).

The Distribution of the Regulatory Burden Across Business Sectors: Three Metrics

Tables 9A and 9B further deconstruct the business portion of regulation costs by

sector and for the four types of regulations. We employ three measures of the

regulatory burden to assess the cost distribution across business sectors: cost per firm,

cost per employee, and cost as a share of receipts.

26 In the 1995 study, Hopkins used regulatory trends to project the costs out through 2000. Thatprojection for the total cost of regulation in 2000 was $815 billion (converted to 2000 dollars),which falls $28 billion shy of our total cost estimate of $843 billion. In other words, the Hopkinsfive-year forecast falls 3.3 percent below our updated 2000 cost estimate.

27

Table 9A. Average Sectoral Regulatory Costs, Method A(Efficiency and Transfer Costs, in 2000 Dollars. Total Costs in Billions)

Manufacturing Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ 69 $ 206,089 $ 3,691 1.6%Economic $ 48 $ 142,579 $ 2,553 1.1%Workplace $ 16 $ 46,812 $ 838 0.4%Tax Compliance $ 15 $ 45,925 $ 822 0.4%Total $ 147 $ 441,406 $ 7,904 3.4%

Trade Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ - $ - $ - 0.0%Economic $ 62 $ 41,291 $ 2,166 1.1%Workplace $ 21 $ 14,003 $ 734 0.4%Tax Compliance $ 20 $ 13,300 $ 698 0.4%Total $ 104 $ 68,594 $ 3,598 1.8%

Services Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ 1 $ 557 $ 33 0.0%Economic $ 32 $ 14,239 $ 847 1.1%Workplace $ 28 $ 12,547 $ 747 1.0%Tax Compliance $ 10 $ 4,587 $ 273 0.4%Total $ 71 $ 31,930 $ 1,900 2.5%

Other Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ 58 $ 39,233 $ 2,823 0.8%Economic $ 76 $ 51,480 $ 3,704 1.1%Workplace $ 17 $ 11,745 $ 845 0.3%Tax Compliance $ 24 $ 16,582 $ 1,193 0.4%Total $ 175 $ 119,039 $ 8,564 2.6%

US Totals (Averages use weights for the respective sectors) Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ 128 $ 23,056 $ 1,213 0.7%Economic $ 217 $ 39,239 $ 2,065 1.1%Workplace $ 82 $ 14,794 $ 779 0.4%Tax Compliance $ 70 $ 12,639 $ 665 0.4%Total $ 497 $ 89,729 $ 4,722 2.5%

28

Table 9B. Average Sectoral Regulatory Costs, Method B(Efficiency Costs Only, in 2000 Dollars. Total Costs in Billions)

Manufacturing Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ 69 $ 206,089 $ 3,691 1.6%Economic $ 16 $ 47,526 $ 851 0.4%Workplace $ 5 $ 14,830 $ 266 0.1%Tax Compliance $ 15 $ 45,925 $ 822 0.4%Total $ 105 $ 314,371 $ 5,630 2.4%

Trade Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ - $ - $ - 0.0%Economic $ 21 $ 13,764 $ 722 0.4%Workplace $ 6 $ 3,910 $ 205 0.1%Tax Compliance $ 20 $ 13,300 $ 698 0.4%Total $ 47 $ 30,974 $ 1,625 0.8%

Services Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ 1 $ 557 $ 33 0.0%Economic $ 11 $ 4,746 $ 282 0.4%Workplace $ 8 $ 3,565 $ 212 0.3%Tax Compliance $ 10 $ 4,587 $ 273 0.4%Total $ 30 $ 13,455 $ 801 1.0%

Other Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ 58 $ 39,233 $ 2,823 0.8%Economic $ 25 $ 17,160 $ 1,235 0.4%Workplace $ 6 $ 3,746 $ 269 0.1%Tax Compliance $ 24 $ 16,582 $ 1,193 0.4%Total $ 113 $ 76,720 $ 5,520 1.7%

US Totals (Averages use weights for the respective sectors) Total Costs Cost per Firm Cost per Employee Cost as a Percent of Receipts

Environmental $ 128 $ 23,056 $ 1,213 0.7%Economic $ 72 $ 13,080 $ 688 0.4%Workplace $ 24 $ 4,385 $ 231 0.1%Tax Compliance $ 70 $ 12,639 $ 665 0.4%Total $ 295 $ 53,160 $ 2,798 1.5%

29

The bottom rows of Tables 9A and 9B put the overall cost to the “typical” U.S.

firm at roughly $90,000 using Method A and $53,000 using Method B.27 As a percent of

firm receipts, the cost of all regulations typically equals 2.5 percent in Method A and 1.5

percent in Method B.28 The cost per employee for the typical U.S. firm is $4,722 in

Method A and $2,798 in Method B.

The three cost metrics shown in Tables 9A and 9B point to two conclusions.

First, the manufacturing sector bears the highest total regulatory burden. (The sole

exception to this conclusion: the manufacturing sector ranks a close second to the

“other” sector in terms of the cost per employee in Table 9A.) In terms of the cost per

firm, the burden on the manufacturing sector (more than $440,000) exceeds the burden

on the second most costly sector (the “other” category which equals about $119,000 per

firm) by a factor of about four. When the regulatory burden is measured as a share of

industry receipts, the manufacturing sector exceeds the second most costly sector

(“other”) by 34 to 48 percent.

The second conclusion from the metrics in Tables 9A and 9B is that the service

sector bears the lowest total regulatory burden. In term of the cost per firm, the burden

on the service sector is less than half the burden on the second least costly sector (the

trade sector), and amounts to only 4 percent to 7 percent of the cost burden on the

manufacturing sector. We note, however, that when the burden is gauged by costs as a

percent of receipts, the trade sector fares slightly better than the service sector. Thus

some conclusions about relative regulatory burden depend on which metric one favors.

27 The U.S. total figures are based on a weighted average of the costs in the four businesssectors. The weights for each average use the share for the respective category. For example,for the “cost per firm” value we weight the cost per firm in each sector by the share of all U.S.firms in that sector. For the “cost as a percent of receipts” value we weight the sector values bythe share of all U.S. receipts in that sector, and so on.

28 One could interpret these percentages as equivalent to an excise tax on firms’ sales.

30

As a final observation about the results in Tables 9A and 9B, we find a quite

large variation in the distribution of the regulatory burden across major sectors of the

economy. Even the two sectors in the middle of the cost distribution, the trade sector

and the “other” category, exhibit a large cost difference. Looking across the three

alternative burden metrics, costs in the trade sector are some 30 percent to 70 percent

lower than the costs in the “other” category.

The Distribution of Regulatory Costs by Firm Size

The distribution of regulatory costs across different firm size categories is

presented in Table 10A (for Method A) and Table 10B (for Method B).

31

Table 10A. Business Regulatory Costs in Small, Medium and Large Firms, 2000(Transfer and Efficiency Cost per Employee in 2000 Dollars) Method A

Manufacturing Firm Size

All Firms <20 20-499 500+Environmental $ 3,691 $ 11,671 $ 4,115 $ 2,515Economic $ 2,553 $ 1,433 $ 1,664 $ 3,151Workplace $ 838 $ 953 $ 954 $ 763Tax Compliance $ 822 $ 2,863 $ 722 $ 631Total $ 7,904 $ 16,920 $ 7,454 $ 7,059

Trade Firm Size

All Firms <20 20-499 500+Environmental $ - $ - $ - $ -Economic $ 2,166 $ 2,252 $ 2,055 $ 2,206Workplace $ 734 $ 766 $ 823 $ 658Tax Compliance $ 698 $ 990 $ 729 $ 542Total $ 3,598 $ 4,008 $ 3,607 $ 3,406

Services Firm Size

All Firms <20 20-499 500+Environmental $ 33 $ 77 $ 27 $ 17Economic $ 847 $ 992 $ 725 $ 873Workplace $ 747 $ 779 $ 833 $ 666Tax Compliance $ 273 $ 399 $ 263 $ 222Total $ 1,900 $ 2,246 $ 1,848 $ 1,777

Other Firm Size

All Firms <20 20-499 500+Environmental $ 2,823 $ 6,358 $ 2,242 $ 1,370Economic $ 3,704 $ 2,025 $ 2,748 $ 5,219Workplace $ 845 $ 899 $ 941 $ 753Tax Compliance $ 1,193 $ 1,454 $ 1,052 $ 1,151Total $ 8,564 $ 10,735 $ 6,982 $ 8,493

U.S. Totals (averages use employment shares to weight the respectivesectors)

Firm Size All Firms <20 20-499 500+

Environmental $ 1,213 $ 3,328 $ 1,173 $ 717Economic $ 2,065 $ 1,616 $ 1,648 $ 2,485Workplace $ 779 $ 829 $ 873 $ 698Tax Compliance $ 665 $ 1,202 $ 625 $ 562Total $ 4,722 $ 6,975 $ 4,319 $ 4,463

32

Table 10B. Business Regulatory Costs in Small, Medium and Large Firms, 2000(Efficiency Cost per Employee in 2000 Dollars) Method B

Manufacturing Firm Size

All Firms <20 20-499 500+Environmental $ 3,691 $ 11,671 $ 4,115 $ 2,515Economic $ 851 $ 478 $ 555 $ 1,050Workplace $ 266 $ 313 $ 301 $ 241Tax Compliance $ 822 $ 2,863 $ 722 $ 631Total $ 5,630 $ 15,325 $ 5,692 $ 4,436

Trade Firm Size

All Firms <20 20-499 500+Environmental $ - $ - $ - $ -Economic $ 722 $ 751 $ 685 $ 735Workplace $ 205 $ 218 $ 228 $ 182Tax Compliance $ 698 $ 990 $ 729 $ 542Total $ 1,625 $ 1,959 $ 1,642 $ 1,459

Services Firm Size

All Firms <20 20-499 500+Environmental $ 33 $ 77 $ 27 $ 17Economic $ 282 $ 331 $ 242 $ 291Workplace $ 212 $ 227 $ 235 $ 188Tax Compliance $ 273 $ 399 $ 263 $ 222Total $ 801 $ 1,033 $ 766 $ 717

Other Firm Size

All Firms <20 20-499 500+Environmental $ 2,823 $ 6,358 $ 2,242 $ 1,370Economic $ 1,235 $ 675 $ 916 $ 1,740Workplace $ 269 $ 298 $ 296 $ 237Tax Compliance $ 1,193 $ 1,454 $ 1,052 $ 1,151Total $ 5,520 $ 8,784 $ 4,506 $ 4,498

U.S. Totals (averages use employment shares to weight the respectivesectors)

Firm Size All Firms <20 20-499 500+

Environmental $ 1,213 $ 3,328 $ 1,173 $ 717Economic $ 688 $ 539 $ 549 $ 828Workplace $ 231 $ 254 $ 257 $ 205Tax Compliance $ 665 $ 1,202 $ 625 $ 562Total $ 2,798 $ 5,322 $ 2,604 $ 2,313

33

Considering first the aggregate results for all federal regulations and all business

sectors (the last row of Table 10A), regulations cost small firms an estimated $6,975 per

employee annually. Regulations cost medium-size firms $4,319 per employee and large

firms $4,463 per employee. The cost per employee thus appears to be roughly 60

percent higher in small firms than in medium-sized and large firms. The estimates in

Table 10B indicate an even larger cost differential, although the costs per employee in

every size category are lower than the estimates in shown in Table 10A. Using Method

B (Table 10B), the cost per employee is 104 percent higher in small firms (=$5,322) than

in medium-sized firms (=$2,604), and 130 percent higher in small firms than in large

firms (=$2,313).

Appendix 5 provides highlights from the 1995 Hopkins study in order to facilitate

comparisons with this report’s findings for 2000. One of the major findings in the 1995

Hopkins study is that the average firm with fewer than 20 employees spent some $5,500

per employee to comply with federal regulations in 1992. By contrast, firms with 500 or

more employees spent a much smaller $3,000 per employee.29 In other words, the

Hopkins estimates indicate economies of scale in regulatory compliance.30 This result

holds for Hopkins’ aggregate estimates for all U.S. firms, as well as for three out of his

four major industrial sub-sectors: Trade, Services, and Other. The important exception

is the manufacturing sector. In that sector, Hopkins finds that small firms exhibit

compliance costs per employee that are roughly 10 percent lower than compliance costs

29 These cost estimates (in 1995 dollars) include the four main types of federal regulations:environmental, social (e.g., OSHA), economic (controls on prices and entry conditions), andprocess (mainly tax compliance paperwork). These are only two of a range of estimates providedin Hopkins (1995). Compliance data for 1992 was the most recently available at the time of theHopkins study.

30 The absence of a quantitative estimate of economies of scale in regulatory compliancerepresents a weakness in the 1995 Hopkins study, as he readily acknowledged in the report. Toredress this weakness, the present report incorporates an empirical estimation of the relationshipbetween firm size and compliance costs for environmental regulations, as outlined above inSection III and detailed in Appendix 2.

34

in medium sized firms. Large manufacturing firms, those with 500 or more employees,

exhibit compliance costs per employee that run about half the costs in small firms.

The data in the 1995 Hopkins report reflect regulatory compliance activities in

1992, which are converted in Appendix 5 into 2000 dollars, so that they are more

comparable with this report’s data. Referring to the total compliance costs across all

sectors and including transfer costs, Hopkins found that regulations cost small firms an

estimated $6,253 per employee annually. Regulations cost medium-size firms $5,989

per employee and large firms $3,367 per employee.

These results indicate that the cost per employee in 1992 was only 4 percent

higher in small firms than in medium-sized, as compared to the nearly 60 percent

difference this study finds for 2000. The cost per employee in 1992 was about 80

percent higher in small firms than in large firms, as compared to the nearly 60 percent

difference indicated for 2000. In other words, the estimates for 1992 suggest a minor

cost differential between small and medium firms, and a large gap between the costs in

small and medium firms versus the costs in large firms. The present study’s estimates

for 2000 suggest that the major gap in costs occurs between small firms and medium

firms, with a relatively minor difference in the costs facing medium and large firms.

As this report’s findings for 2000 in Table 10A and Table 10B indicate, the

distribution of compliance costs with respect to firm size classes differs across the four

major business sectors. The disproportionate cost burden on small firms is particularly

large for the manufacturing sector. In that sector (using Table 10A) the estimated cost

per employee for small firms ($16,920) is 127 percent higher than in medium sized firms

($7,454), and 140 percent higher than in large firms ($7,059). Importantly, two types of

regulations, environmental and tax compliance, drive the cost disadvantage facing small

manufacturing firms. The cost of workplace regulations is virtually identical for small and

35

medium sized manufacturers, and about 25 percent higher in small and mid-sized firms

compared to large manufacturing firms. With regard to economic regulations, we find

that the burden falls disproportionately on large manufacturing firms. The burden of

economic regulations on small firms is 55 percent lower than on large firms.31

The least cost differential with respect to firm size appears in the trade sector

(wholesale and retail businesses). In that sector the total cost per employee for small

firms ($4,008) exceeds the cost in medium firms ($3,607) by 11 percent and the cost in

large firms ($3,406) by 18 percent.32 The cost differential in the trade sector is driven

almost completely by tax compliance; this cost for small firms exceeds the cost in

medium firms by 36 percent, and the cost in large firms by 83 percent. Interestingly, we

find a slight relative cost advantage for small trade firms compared to mid-sized firms

regarding workplace regulations, although the cost per employee is lowest overall for the

large firms in this sector. In other words, in the trade sector workplace regulations hit

mid-sized firms particularly hard. The cost of economic regulations is 10 percent higher

in small retail and wholesale firms compared to mid-size firms, and a mere 2 percent

higher in small firms than in large firms.

In the service sector, the overall cost per employee in small firms ($2,246) is 22

percent higher than the cost in mid-sized firms ($1,848), and 26 percent higher than in

large firms ($1,777). While the burden of environmental regulations is low in the service

sector compared to the manufacturing and other sectors, the cost differential with

respect to firm size is quite large. Environmental regulations cost small service firms

31 This cost profile for the manufacturing sector differs substantially from the 1992 estimates inHopkins (1995). As shown in Appendix 5, the total compliance cost for small manufacturing firmswas 15 percent lower in small firms than in medium firms.

32 The cost profile for the trade sector in 2000 comes somewhat closer to the pattern estimated inHopkins (1995) as illustrated in Appendix 5. In the trade sector Hopkins also estimatedaggregate costs were 11 percent lower in small firms compared to medium firms. However, theaggregate cost difference between small and large firms was estimated to be nearly 90 percent.

36

three to four times more than the cost on medium and large firms in this sector. The

distribution of tax compliance costs falls disproportionately on small service firms, as it

does in the three other business sectors. As in the trade sector, the findings indicate

that the cost of workplace regulations is highest for mid-size service firms. Unlike the

trade sector, however, in the service sector economic regulations are 37 percent higher

in small firms than in mid-size firms, and 14 percent higher than in large firms.

Regarding firms in the “other” category, the cost per employee is $10,735 in

small firms, $6,982 in medium sized firms, and $8,493 in large firms. In essence, in this

sector the regulatory burden is disproportionately heavy on small firms, and mid-sized

firms appear to enjoy a relative cost advantage. Here, environmental regulations and

tax compliance drive the cost disadvantage for small firms, and economic regulations

work against the large firms.

In summary, the cost disadvantage on small business in each sector is driven

largely by compliance with environmental regulations and with the federal tax code.

However, the particular drivers differ somewhat across the four business sectors.

Moreover, not all regulations fall more heavily on small firms than on larger firms. The

cost of economic regulations falls most heavily on large firms in two major sectors

(manufacturing and “other”). The cost of workplace regulations falls most heavily on

med-sized firms, which most likely reflects the fact that many workplace regulations

explicitly exempt small firms. Finally, small manufacturing firms appear to bear a

disproportionately large burden of regulations as measured by the cost per employee.

37

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42

Appendix 1. Statutes and Executive Orders Governing Workplace Regulations

Source: U.S. General Accounting Office, Workplace Regulation, June 1994

An asterisk indicates that firms with less than 20 employees are explicitly exempted.

Labor Standards:

Fair Labor Standards Act (FLSA)

Davis-Bacon Act

Service Contract Act

Walsh-Healey Act

Contract Work Hours and Safety Standards Act

Migrant and Seasonal Agricultural Worker Protection Act

Employee Benefits:

* Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

Family and Medical Leave Act (FMLA)

Employee Retirement Income Security Act (ERISA)

Unemployment Compensation Act

Labor-Management Relations:

National Labor Relations Act (NLRA)

Labor-Management Reporting and Disclosure Act (LMRDA)

Occupational Safety and Health

Occupational Safety and Health Act (OSHA)

Federal Mine Safety and Health Act (MSHA)

* Drug Free Workplace Act

Omnibus Transportation Employee Testing Act (OTETA)

Civil Rights:

Equal Pay Act

* Title VII of the Civil Rights Act of 1964

* Age Discrimination in Employment Act (ADEA)

* Americans with Disabilities Act (ADA)

Executive Order 11246

Rehabilitation Act of 1973

Employment Decision Laws:

Polygraph Protection Act

Immigration Reform and Control Act (IRCA)

* Worker Adjustment and Retraining Notification Act (WARN)

43

Appendix 2. Economies of Scale in Environmental Compliance Costs

Introduction

This Appendix provides an empirical estimate of the relationship between firm

size and compliance costs for environmental regulations. We estimate this relationship

using pollution abatement expenditures by manufacturing firms. For reasons described

below we use data for 1992; this means that the estimates of economies of scale are

somewhat comparable to the last year used in Hopkins, 1995. Environmental

regulations account for between 23 percent (Method A) and 40 percent (Method B) of

the total cost of all federal regulations (see Table 8 in the text). Among environmental

regulations, pollution abatement expenditures account for about one-fourth of the costs.

Thus, a reliable estimate of scale economies in pollution abatement goes a long way

toward understanding the general incidence of regulatory costs.

Estimation Procedure and Results

The general approach is to estimate the relationship between pollution

abatement cost (PAC) per employee and firm size, here measured by the number of

employees per firm. Equation (1) specifies the estimation equation, which is estimated

in log form:

(Eq. 1) ln(PAC / employee) i,s = β ln(Firm Size i,s) + φ ln(Value of Sales i,s) + γ i + ε i,s ,

where subscript i stands for a specific industry type and subscript s stands for a specific

American State. Industry types are defined by two-digit SIC codes covering all

industries in the manufacturing sector; see the Table A-3 below for a description of the

44

20 industries included. Each continuous variable is entered into Equation 1 as a natural

logarithmic transformation (ln).

In Equation 1 the dependent variable, (PAC / employee) i,s, measures the

average pollution abatement expenditure per employee in industry i in state s in 1992

(source: Bureau of the Census, 1996). These expenditure data include capital expenses

and operating expenditures. The main independent variable of interest, Firm Size i,s,

measures the average number of employees per firm in industry i in state s (source:

Bureau of the Census, 1992 Economic Census). The estimated coefficient on Firm Size,

β, thus provides the measure of economies of scale. Specifically, how does pollution

abatement expenditure per employee respond to changes in firm size? Equation 1 also

includes a control variable for the average value of sales, and a fixed-effects variable, γ i

, which seeks to control for other factors that cause pollution abatement costs to differ

among the 20 industries. For example, the chemical industry may simply be subject to

different environmental standards than, say, the leather products industry. Including the

fixed-effects dummy variables in the model allows the cost function to shift for each

specific industry. ε i,s is the regression error term, which we assume to be normally

distributed.

We estimate Equation 1 across states using data for 1992. While the Census

Bureau continued to survey pollution abatement expenditures through 1994, we use

1992 because the Census of Manufacturing (the source of the state-level data on firm

sizes, employment, and sales) also occurred in that year (the Census of Manufacturing

is conducted only every five years). Coincidentally, 1992 is the last year used in the

Hopkins study, which facilitates a comparison of results.

45

Results

Table A-1 presents the results. Overall, the regression model demonstrates

considerable explanatory power. The F-statistic is significant at the one-percent

confidence level, and the model explains 83 percent of the variation in pollution

abatement expenditures per employee. The estimate of β, –0.431, is significant at the

0.07 confidence level. This parameter value indicates that a one percent increase in firm

size (the number of employees) corresponds to a 0.431 percent decrease in abatement

costs per employee. (Recall that the variables are entered as log transformations, so

the estimated coefficient indicates the elasticity.) The control variable for the value of

sales is significant at the 0.01 level. Finally, the F-statistic rejects the hypothesis that the

coefficients on the industry-specific dummy variables are jointly equal to zero. In other

words, not surprisingly, the fixed-effects variables pick up significant differences in costs

among the various industries.

Table A-1. Regression Results: Economies of Scale in Compliance Costs: Environmental Regulations

Dependent variable: Pollution Abatement Expenditure per Employee

Independent Variable Coefficient Std. Err. t-stat P>|t|

ln (Number of Employees) -0.431 0.243 -1.78 0.07

ln (Value of Shipments) 0.698 0.186 3.75 0.00

Constant -2.494 2.28 -1.10 0.28

Number of observations = 208Adjusted R-squared = 0.83Regression F-stat (2, 188) = 10.84Fixed Industry Effects, F-stat (17, 188) = 18.43

46

Figure A-1 presents the relationship between pollution abatement expenditures

and firm size graphically, plotting the fitted values generated from the estimates in Table

A-1. This figure vividly illustrates the presence of economies of scale in these

compliance cost data.

Following the firm classification scheme used throughout this study (and the

1995 Hopkins study), we report the predicted costs per employee for three broad

categories of firm sizes: firms with less than 20 employees (“small firms”), firms with 20

to 499 employees (“medium sized firms”), and firms with 500 or more employees (“large

firms”). These costs are also shown in Table A-2, along with the most comparable

values reported by Hopkins (1995), specifically, his estimates of the cost of complying

with environmental regulations for the manufacturing sector. These compliance cost

estimates are not completely comparable simply because Hopkins (1995) includes

additional costs of complying with environmental regulations (e.g., handling of hazardous

materials, noise regulation, and nuclear power safety). Note also that Table A-2

transforms the cost estimates (those shown in Figure 1) into 1995 dollars, the same

base year as the Hopkins figures. While the absolute levels of compliance costs are not

exactly comparable between the two studies, the relative costs with respect to the

different categories of firm sizes is revealing.

47

Economies of Scale in Pollution Abatement CostsUS Manufacturers

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

0 50 100 150 200 250 300 350 400 450 500 550 600Firm Size (Number of Employees)

Po

lluti

on

Ab

atem

ent

Co

st p

er E

mp

loye

e (1

992$

)

Cost per Employee, Small Firms = $4,885

Cost per Employee, Medium Firms = $1,527

Cost per Employee, Large Firms = $933

Figure A-1

48

Table A-2: Comparison to Hopkins Results on Compliance Costs (in 1995 dollars)

Cost per Employee, Manufacturing Sector Firms with:

<20 Employees 20 to 499 Employees 500+ Employees

Values Using Eq. 1 $5,306 $1,659 $1,013

Hopkins (including

additional environmental

compliance costs) $4,437 $5,218 $2,389

As shown in Table A-2, Hopkins (1995) finds that small manufacturing firms

spend about 15 percent less per employee than medium-sized firms, and 86 percent

more than large firms. In contrast, the new estimates indicate that small firms spend

over three times more than medium-sized firms and almost five times more than large

firms.

Concluding Comments

The 1995 study by Hopkins provides the most comprehensive assessment to

date on the incidence of regulatory costs by sector and firm size. However, as he points

out, he was forced to rely on a judgmental approach to the cost allocations across firm

sizes in the absence of specific empirical estimates. This Appendix provides the basis

used in this report to allocate the costs of environmental regulations among the different

firm size classes.

49

Table A-3. Sectors Included in the Regression Analysis in Appendix 2

SIC Code Industry Description20 Food and Kindred products21 Tobacco Products22 Textile Mill Products23 Apparel and other textile products24 Lumber and Wood Products25 Furniture and Fixtures26 Paper and allied products27 Printing and Publishing28 Chemicals and Allied products29 Petroleum and coal products30 Rubber and miscellaneous plastic products31 Leather and leather products32 Stone, clay and glass products33 Primary metal industries34 Fabricated metal products35 Industrial machinery and equipment36 Electronic and other electric equipment37 Transportation equipment38 Instruments and related products39 Miscellaneous manufacturing industries

50

Appendix 3. Allocation of Tax Compliance Costs Across Firm Size Classifications

Table A-4. Basic Data on Business Forms from the Tax Foundation Study

Category and Type of Business FormCompliance Time

(in Hours)Sole Proprietorships

1040 246,415,455Sch C 154,057,576

Sch C-EZ 4,236,643Sch F 11,364,947

Sch SE 22,353,611Sub-Total 438,428,232

PartnershipsForm 1065 199,731,500

Partnership SchedulesSch D 20,070,580

Sch K-1 86,940,037Sch L 31,177,600

Sch M-1 7,437,157Sch M-2 6,073,137

Sub-Total 151,698,511

Total Sole Proprietorships 438,428,232Total Partnerships (Form 1065 + Part. Schedules) 351,430,011

Total Corporations = (Total Business - Sole Prop. - Part.) 1,164,462,585Total Business Hours 1,954,320,828

Table A-4 details the number of hours required to comply with the various types

of federal tax forms. The total number of hours required by all American business is

1,954,320,828. Using the three categories shown in Table A-4, we allocate all the hours

for “Sole Proprietorships” to small firms. We allocate the compliance hours for

“Partnerships” and “Partnership Schedules” between small firms and medium sized firms

based on the share of receipts for these two classifications. For example, in the

manufacturing sector small firms accounted for 17 percent and medium firms accounted

for 83 percent of receipts for these two firm size categories. We thus allocate 17 percent

of the partnership compliance time to small firms and 83 percent to medium-sized firms

in the manufacturing sector.

51

This allocation rule based on receipts is imperfect because, as noted in the text,

the SBA receipts data omit “non-employers,” and most sole proprietorships are non-

employers. According to the Census Bureau, in terms of receipts, non-employers

account for roughly 3 percent of all business activity. At the same time non-employers

account for nearly three-fourths of all businesses. The resulting bias on the cost

allocation is clear, if one chooses to define the non-employer proprietor as an

“employee.” While the omitted receipts for non-employee small firms lowers the total

allocation to that size class, the costs within the small firm class are higher than they

would be if non-employee firms were included.

We allocate the compliance hours for “Corporations” (which are the remaining

hours for the business sector after deducting proprietorships and partnerships) between

medium and large firms based on the share of receipts for these two classifications.

Again as an illustration, in the manufacturing sector medium firms accounted for 22

percent and large firms accounted for 78 percent of receipts for these two firm size

categories. We thus allocate 22 percent of the corporation compliance time to medium-

sized firms and 78 percent to large firms in the manufacturing sector.

The Tax Foundation study estimates that the hourly wage rate for professionals

involved with tax compliance to be $34.66 in 1999 dollars. We thus use this wage rate

(adjusted into 2000 dollars) to compute the estimated cost of tax compliance by

multiplying this wage rate by the number of hours allocated to each sector and each firm

size class.

52

Appendix 4. Spending and Staffing by Federal Regulatory Agencies

Table A-5. Total Spending by Federal Regulatory Agencies on Regulatory Activity Fiscal Years, Millions of 2000 Dollars

Fiscal Year Social Regulations Economic Regulations Total1970 $ 4,951 $ 1,296 $ 6,2471971 $ 5,985 $ 1,378 $ 7,3641972 $ 7,347 $ 1,483 $ 8,8291973 $ 9,068 $ 1,504 $10,5721974 $ 8,493 $ 1,534 $10,0271975 $ 9,494 $ 1,655 $11,1491976 $ 9,224 $ 1,783 $11,0071977 $ 10,104 $ 2,050 $12,1541978 $ 10,600 $ 2,144 $12,7441979 $ 11,110 $ 2,089 $13,1991980 $ 11,087 $ 2,082 $13,1701981 $ 10,405 $ 2,019 $12,4251982 $ 9,845 $ 1,963 $11,8091983 $ 9,597 $ 1,944 $11,5411984 $ 10,101 $ 2,324 $12,4251985 $ 10,453 $ 2,274 $12,7271986 $ 9,889 $ 2,652 $12,5421987 $ 11,142 $ 2,481 $13,6231988 $ 11,551 $ 2,919 $14,4691989 $ 11,817 $ 2,866 $14,6821990 $ 12,425 $ 2,825 $15,2511991 $ 13,107 $ 2,748 $15,8561992 $ 13,936 $ 2,928 $16,8641993 $ 13,777 $ 3,358 $17,1351994 $ 13,977 $ 3,335 $17,3131995 $ 13,739 $ 3,506 $17,2461996 $ 12,885 $ 3,534 $16,4191997 $ 13,459 $ 3,624 $17,0831998 $ 13,872 $ 3,625 $17,4961999 $ 14,243 $ 3,846 $18,0892000* $ 15,004 $ 3,916 $18,920

* indicates estimated value

Source: Center for the Study of American Business, Washington University. Derived from theBudget of the United States Government and related documents, various fiscal years.http://csab.wustl.edu/New%20WC%20Site/CSAB%20publications/CSAB%20pubs-pdf%20files/RBR/RBR%2023.pdf

53

Table A-6. Total Staffing in Federal Regulatory Agencies, Fiscal Years, Full-Time Equivalent Employment

Fiscal Year Social Regulations EconomicRegulations

Total

1970 52,693 17,253 69,9461971 61,788 17,940 79,7281972 68,117 18,248 86,3651973 75,305 18,877 94,1821974 75,522 19,972 95,4941975 80,523 21,720 102,2431976 84,999 22,835 107,8341977 85,454 23,334 108,7881978 89,955 25,077 115,0321979 94,322 25,478 119,8001980 95,533 26,258 121,7911981 91,909 25,300 117,2091982 82,627 23,788 106,4151983 78,396 22,907 101,3031984 78,804 23,043 101,8471985 79,293 22,899 102,1921986 78,447 23,486 101,9331987 78,660 23,144 101,8041988 80,537 23,875 104,4121989 83,019 23,998 107,0171990 87,395 27,289 114,6841991 91,176 27,349 118,5251992 96,257 29,581 125,8381993 98,322 31,338 129,6601994 97,332 31,578 128,9101995 98,179 31,864 130,0431996 96,573 29,727 126,3001997 95,120 28,928 124,0481998 96,136 28,994 125,1301999 96,409 29,318 125,7272000* 99,080 30,735 129,815

* indicates estimated value

Source: Center for the Study of American Business, Washington University. Derived from theBudget of the United States Government and related documents, various fiscal years.http://csab.wustl.edu/New%20WC%20Site/CSAB%20publications/CSAB%20pubs-pdf%20files/RBR/RBR%2023.pdf

54

Appendix 5. Highlights from Hopkins’ 1995 Study, Profiles of Regulatory Costs[restated in 2000 dollars]

Table A-7. Business Regulatory Costs in Small, Medium and Large Firms, 1992(Transfer and Efficiency Cost per Employee in 2000 Dollars)

Manufacturing Firm Size

All Firms <20 20-499 500+Environmental $ 3,858 $ 5,015 $ 5,898 $ 2,700Other Social $ 1,182 $ 1,537 $ 1,807 $ 827Economic $ 1,245 $ 1,618 $ 1,902 $ 871Process $ 809 $ 1,051 $ 1,237 $ 566Total $ 1,245 $ 1,618 $ 1,902 $ 871

Trade Firm Size

All Firms <20 20-499 500+Environmental $ 394 $ 513 $ 465 $ 276Other Social $ 394 $ 513 $ 465 $ 276Economic $ 1,228 $ 1,596 $ 1,443 $ 860Process $ 1,535 $ 1,995 $ 1,804 $ 1,074Total $ 3,596 $ 4,674 $ 4,227 $ 2,517

Services Firm Size

All Firms <20 20-499 500+Environmental $ 331 $ 432 $ 385 $ 232Other Social $ 331 $ 432 $ 385 $ 232Economic $ 1,252 $ 1,630 $ 1,455 $ 877Process $ 1,549 $ 2,012 $ 1,797 $ 1,084Total $ 3,464 $ 4,504 $ 4,022 $ 2,426

Other Firm Size

All Firms <20 20-499 500+Environmental $ 558 $ 726 $ 687 $ 391Other Social $ 558 $ 726 $ 687 $ 391Economic $ 2,110 $ 2,742 $ 2,595 $ 616Process $ 2,607 $ 3,388 $ 3,206 $ 1,824Total $ 5,770 $ 7,502 $ 7,099 $ 4,040

U.S. Totals Firm Size

All Firms <20 20-499 500+Environmental $ 1,084 $ 1,408 $ 1,350 $ 758Other Social $ 572 $ 744 $ 712 $ 400Economic $ 1,413 $ 1,836 $ 1,759 $ 989Process $ 1,753 $ 2,280 $ 2,183 $ 1,228Total $ 4,810 $ 6,253 $ 5,989 $ 3,367

55

Table A-8. Business Regulatory Costs in Small, Medium and Large Firms, 1992(Efficiency Cost per Employee in 2000 Dollars)

Manufacturing Firm Size

All Firms <20 20-499 500+Environmental $ 3,111 $ 4,044 $ 4,756 $ 2,178Other Social $ 1,182 $ 1,537 $ 1,807 $ 827Economic $ 435 $ 566 $ 666 $ 305Process $ 1,182 $ 1,537 $ 1,807 $ 827Total $ 5,848 $ 7,603 $ 8,943 $ 4,094

Trade Firm Size

All Firms <20 20-499 500+Environmental $ 307 $ 399 $ 361 $ 215Other Social $ 394 $ 513 $ 465 $ 276Economic $ 439 $ 570 $ 515 $ 307Process $ 1,182 $ 1,537 $ 1,807 $ 827Total $ 5,848 $ 7,603 $ 8,943 $ 4,094

Services Firm Size

All Firms <20 20-499 500+Environmental $ 258 $ 336 $ 300 $ 181Other Social $ 331 $ 432 $ 385 $ 232Economic $ 442 $ 575 $ 513 $ 310Process $ 1,180 $ 1,534 $ 1,369 $ 825Total $ 2,212 $ 2,876 $ 2,567 $ 1,549

Other Firm Size

All Firms <20 20-499 500+Environmental $ 434 $ 565 $ 535 $ 304Other Social $ 558 $ 726 $ 687 $ 391Economic $ 745 $ 968 $ 916 $ 521Process $ 1,924 $ 2,500 $ 2,366 $ 1,346Total $ 3,661 $ 4,759 $ 4,503 $ 2,562

U.S. Totals Firm Size

All Firms <20 20-499 500+Environmental $ 865 $ 1,124 $ 1,076 $ 605Other Social $ 572 $ 744 $ 712 $ 400Economic $ 500 $ 649 $ 622 $ 349Process $ 1,315 $ 1,710 $ 1,638 $ 920Total $ 3,251 $ 4,226 $ 4,048 $ 2,275